Risk/Reward Ratio Calculator
Calculate the risk-to-reward ratio for any trade with a visual representation.
Formula
A 1:3 ratio means you risk $1 to potentially make $3. Lower ratios (1:1) need higher win rates to be profitable.
With a 1:2 R:R, you only need to win 33.3% of trades to break even. With 1:1, you need 50%.
Examples
- Entry = $50,000
- Risk = |$50,000 − $48,000| = $2,000
- Reward = |$56,000 − $50,000| = $6,000
- R:R = $2,000 / $6,000 = 1:3
- Break-even win rate = 1 / (1 + 3) = 25%
- Entry = $3,200
- Risk = |$3,200 − $3,300| = $100
- Reward = |$2,900 − $3,200| = $300
- R:R = $100 / $300 = 1:3
- Break-even win rate = 25%
- Entry = $150
- Risk = |$150 − $148| = $2
- Reward = |$152 − $150| = $2
- R:R = $2 / $2 = 1:1
- Break-even win rate = 1 / (1 + 1) = 50%
Key Concepts
What is Risk/Reward Ratio?
The risk/reward ratio compares the potential loss (risk) to the potential profit (reward) of a trade. A 1:2 ratio means for every $1 you risk, you stand to make $2.
Why R:R Matters More Than Win Rate
A trader who wins only 40% of trades can still be very profitable with a 1:3 R:R ratio. The math: 40 wins × $3 = $120 earned, 60 losses × $1 = $60 lost. Net: +$60.
The Minimum R:R Debate
Many traders won't take trades below 1:2 R:R. Others are comfortable with 1:1 if their edge gives a high enough win rate. The right minimum depends on your strategy's historical win rate.
Asymmetric Risk/Reward
The best trades have highly asymmetric R:R — risking a small amount for a disproportionately large potential gain. Options strategies and well-placed stop losses can create asymmetric setups.
R:R and Position Sizing
R:R works hand-in-hand with position sizing. Once you know your risk distance (entry to stop), the position size calculator tells you how large to make the trade.
Realistic Targets
Setting unrealistic take-profit targets inflates R:R on paper but reduces the probability of the trade hitting target. Good R:R must be paired with realistic targets based on support, resistance, and market structure.
How to Use Risk/Reward Ratio
The risk/reward ratio is calculated before entering a trade. You define three price levels: your entry, your stop loss (where you exit if wrong), and your take profit (where you exit if right). The ratio of the distance to stop vs distance to target gives your R:R.
This ratio is a planning tool, not a prediction. A 1:3 R:R doesn't mean you'll make 3x your risk — it means IF the trade hits target, you'll make 3x what you'd lose if stopped out. The probability of each outcome depends on your strategy.
Combined with your historical win rate, R:R lets you calculate your expected value per trade. If you win 50% of the time with a 1:2 R:R, your expected value per $1 risked is $0.50 — a strong positive edge.
Frequently Asked Questions
What's a good risk/reward ratio?
Most traders aim for at least 1:2 (risk $1 to make $2). This means you can be profitable even with a 40% win rate. Swing traders often target 1:3 or higher, while scalpers may accept 1:1 with a higher win rate.
Does this include fees?
This calculator shows the raw R:R based on price levels. In practice, fees slightly reduce your reward and increase your risk. For round-trip fees of 0.1%, the effective R:R on tight scalps is notably worse.
Should I always use the same R:R?
Not necessarily. Different setups have different probabilities. A breakout trade might warrant 1:3 R:R, while a mean-reversion scalp might work at 1:1 with a 65% win rate. Match R:R to the setup's characteristics.